With the formal announcement yesterday of the rollout of federal credit bureau from July, bank customers are expected to have their individual credit scores based on historical data available at the earliest by the third quarter of next year.

However, even with data on individual’s history of credit payments and defaults, it will be a while before the necessity of bank cheques as guarantee is obviated and a case of bounced cheque is decriminalised.

During the three years of financial crisis between 2009 and 2011, hundreds of customers — both individuals and owners of commercial firms — who defaulted on their loan payments were put behind bars, leading to calls for change in bankruptcy laws and formation of a credit bureau.

Welcoming the official launch of the Al Etihad Credit Bureau as something “good for both the lenders and borrowers,” head of retail of Dubai’s biggest lender Emirates NBD said it is “bit too early to comment” on the issue of doing away with cheques as a guarantee against loans despite having individual scores.

“It’s too early to say whether it will lead to that. At some stage yes, the market will have to move to decriminalise cheques, but that still may be a few years away,” said Suvo Sarkar, general manager, retail banking Emirates NBD, which is one of the 12 banks comprising the working group of the bureau.

Separating the two issues of a person’s credit history and the need to reduce the usage of cheques as a security against default, Younis Al Khoori, deputy chairman of Al Etihad Credit Bureau, told the media after announcing the launch of the credit bureau, “I think the habit itself will change gradually, to be frank.

People will determine the value of individuals more through the historical data available than the paper given.” He hopes the cheque being a guarantee for any borrower will change sooner rather than later.

The credit bureau will start collecting information on individuals’ credit applications, payment behaviour and debt records not just from the banks, but also from telecommunications companies and utility services in phases. Phase one will see the launch of Consumer Bureau and during Phase two in the later part of the year, Commercial Bureau will be launched. And this will include credit payments over the past two years and defaults record over the past five years.

And information will be collected of both expatriates and Emirati nationals, even though personal debt defaults of low-income citizens, for example, were waived by the setting up of a $10 billion debt fund last year.

“Information will be collected regardless of the solution,” said Al Khoori. “We are collecting information directly from the banks — individual ratings will happen regardless of the solution provided outside.”

However, disciplined borrowers with a good credit history can now expect to get benefits, among which is a lower interest rate.

“The bureau will play a major role in facilitating the due diligence process, thereby speeding customer’s access to financial services,” said Khalid Al Gibaly, Regional Head of Consumer Banking, UAE and Middle East. “In addition, customers with a steady credit history will certainly enjoy additional benefits, including lower interest rates.”

Sarkar agreed. “I can charge a much lower rate with a much better credit history. Customers in general will benefit, the right customers will get the right rate. From the banks’ perspective, it will allow a risk-based pricing, and remove the asymmetries that are existing between borrowers and lenders.”